International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, July 28, 2017

Foreign Recipients of U.S. Income Statistics

What is the Foreign Recipients of U.S. Income Study?

Withholding Agents who pay U.S.-source income to nonresident aliens and other foreign persons are required to report this income on Form 1042-S, Foreign Persons' U.S.- Irs_logoSource Income Subject to Withholding. This income is subject to a flat, statutory tax rate of 30 percent. However, this rate is frequently reduced or eliminated by an income tax treaty or statutory exemption. Income that is exempt from taxation because of a tax treaty or certain other exemptions must still be reported. U.S. individuals, corporations, or other entities paying U.S.-source income to foreign persons are required to withhold taxes on this income (except where statutory or treaty exemptions apply) or to appoint a withholding agent (normally a U.S. financial institution) to do so. Foreign financial institutions that enter into an agreement with the Internal Revenue Service, known as qualified intermediaries (QIs), may also serve as withholding agents. A withholding agent or qualified intermediary is fully liable for all taxes owed by a foreign beneficial owner and also reports the income paid to each recipient on a Form 1042S. Without this withholding requirement, there would be no effective way to enforce taxpayer compliance because foreign recipients are generally not required to file U.S. tax returns to report this income.

For information about selected terms and concepts and a description of the data sources and limitations, please visit Foreign Recipients of U.S. Income Metadata.

Statistical Tables

Forms 1042-S: Number, Total U.S.-Source Income, and U.S. Tax Withheld
Shown by tax treaty countries and total non-tax treaty countries.

Forms 1042-S: Number, U.S. Tax Withheld, and U.S.-Source Income
Shown by principal type of income, selected recipient type, and selected country of recipient.

Forms 1042S (includes only returns withheld pursuant to Chapter 4):  Number, Total U.S.-Source Income, and U.S. Tax Withheld
Shown by selected income types

Forms 8288-A: Number, Sales Price, and U.S. Tax Withheld
Shown by selected country of the seller.

July 28, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, July 27, 2017

Eaton Wins Important Transfer Pricing Case About IRS Post-Review of APAs

 Eaton Corp. v. Commissioner, T.C. Memo. 2017-147

Eaton and the IRS entered into two advance pricing agreements (APAs) establishing a transfer pricing methodology for covered transactions between Eaton and its TP book coversubsidiaries. The first APA (APA I) applied for Eaton’s 2001-05 tax years, and the second APA (APA II) applied for Eaton'’s 2006-10 tax years. Eaton and the IRS agreed that the legal effect and administration of APA I and APA II were governed by Rev. Proc. 96- 53, 1996-2 C.B. 375, and Rev. Proc. 2004-40, 2004-2 C.B. 50, respectively.

In 2011 the IRS determined that Eaton had not complied with the applicable terms of the revenue procedures and canceled APA I, effective January 1, 2005, and APA II, effective January 1, 2006. As a result of canceling the APAs, the IRS determined that under I.R.C. sec. 482 an adjustment was necessary to reflect an arm’s-length result for Eaton’s intercompany transactions.

In its petition to the Tax Court, Eaton acknowledged that certain errors existed in the data used to calculate the results under the TPM for both of the APAs, but emphasized that it identified the errors, immediately disclosed them to the IRS, took appropriate measures to correct the errors, and submitted amended APA annual reports that reflected the changes made to fix the data errors. The Commissioner’s Answer, which the IRS filed on May 7, 2012, responded by stating examples of alleged material deficiencies in APA compliance, including noncompliance with the terms and conditions of the APA, errors in supporting data and computations used in the transfer pricing methodologies, lack of consistency in the application of the TPMs, use of distortive accounting, material facts being misrepresented, mistakenly presented, or not presented in submissions, discrepancies between the transfer pricing reported by Eaton in its APA Annual Reports and the transfer pricing reflected on its books and tax returns, and the failure to explain relevant book-tax differences and schedule M adjustments.

Eaton contends that the IRS’s cancellation of APA I and APA II was an abuse of discretion because there was no basis for the cancellation under the applicable revenue procedures. The IRS contends that the determination to cancel both APA I and APA II was not an abuse of discretion because Eaton did not comply in good faith with the terms and conditions of either APA I or APA II and failed to satisfy the APA annual reporting requirements. As an alternative position, IRS determined that Eaton transferred intangible property compensable under I.R.C. sec. 367(d) to Eaton's’s controlled foreign affiliates for tax year 2006.

Held (202 page decision): The IRS's determination to cancel APA I and APA II was an abuse of discretion. Held, further, Eaton did not transfer intangibles subject to I.R.C. sec. 367(d). Held, further, Eaton’s bonus payments represented employee compensation, entitling Eaton to a deduction under I.R.C. sec. 162(a).

For an in-depth analysis, see the forthcoming supplement of William Byrnes, Practical Guide to U.S. Transfer Pricing (available on Lexis Advance).

July 27, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, July 14, 2017

IRS Releases Partnerships, Withholding on Foreign Recipients of U.S. Income, Tax Year 2014

Treasury-Dept.-Seal-of-the-IRSPartnerships, Withholding on Foreign Recipients of U.S. Income, Tax Year 2014—One new table presenting data from Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, is now available on SOI’s Tax Stats Web page. The table provides U.S. income and tax withheld as reported on Form 8805, by country of residence for Tax Year 2014, and includes the number of returns, total income, income, loss, and tax withheld.

July 14, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, July 13, 2017

French Court Finds Google Does Not Have a French Permanent Establishment. Spares $1.2 Billion Tax Bill.

La société irlandaise Google Ireland Limited (GIL), filiale du groupe américain Google Inc., commercialise, en France notamment, un service payant d’insertion d’annonces publicitaires en ligne, « AdWords », corrélé au moteur de recherche Google.

La société française Google France (GF), également contrôlée par Google Inc., fournit, aux termes d’un contrat conclu avec GIL, assistance commerciale et conseil à la clientèle française de GIL, constituée d’annonceurs ayant souscrit à son service « AdWords ».

La société GIL contestait les redressements fiscaux dont elle avait fait l’objet en matière d’impôt sur les sociétés, retenue à la source, TVA, cotisation minimale de taxe professionnelle et cotisation sur la valeur ajoutée des entreprises, à raison des prestations de publicité qu’elle facture à ses clients français.

Le tribunal administratif a donné raison à la société GIL en prononçant la décharge des impositions contestées.

S’agissant de l’impôt sur les sociétés et de la retenue à la source, l’administration fiscale s’était fondée sur l’alinéa 9-c de l’article 2 de la convention fiscale franco-irlandaise qui prévoit l’imposition en cas de présence d’un établissement stable en France. Le tribunal a jugé que GIL ne disposait pas en France, en la personne morale de GF, d’un tel établissement stable. En effet, l’existence d’un tel établissement stable est subordonnée à deux conditions cumulatives : la dépendance de GF vis-à-vis de GIL et le pouvoir de GF d’engager juridiquement GIL. Or,  le tribunal a estimé que GF ne pouvait engager juridiquement GIL car les salariés de GF ne pouvaient procéder eux-mêmes à la mise en ligne des annonces publicitaires commandées par les clients français, toute commande devant en dernier ressort faire l’objet d’une validation de GIL.

S’agissant de la TVA, la jurisprudence communautaire soumet l’imposition à l’existence d’une structure apte, du point de vue de l'équipement humain et technique, à réaliser des prestations de manière autonome. Le tribunal a jugé que tel n’était pas le cas de GF, qui ne disposait ni des moyens humains (le personnel de GF n’a pas le pouvoir de mettre en ligne les annonces publicitaires commandées par les clients français), ni des moyens techniques (absence, notamment, de serveurs en France) la rendant à même de réaliser les prestations de publicité en cause.

S’agissant de la cotisation minimale de taxe professionnelle et de la cotisation sur la valeur ajoutée des entreprises, le tribunal a jugé que GIL ne disposait en France d’aucune immobilisation corporelle placée sous son contrôle, utilisable matériellement pour la réalisation des prestations de publicité litigieuses. Il a, en effet, estimé que les locaux de GF étaient utilisés pour les besoins de sa propre activité d’assistance et de conseil et que son matériel informatique ne permettait pas à lui seul la réalisation des prestations publicitaires de GIL en France.

French Revenue Official Statement:  Download French Revenue Authority statement

see Google, France Tax Raid, and Texas Hold'em

Court webpage

      > Lire le jugement n°1505113/1-1  du 12 juillet 2017 

      > Lire le jugement n°1505126/1-1  du 12 juillet 2017

     > Lire le jugement n°1505147/1-1 du 12 juillet 2017                                                    

      > Lire le jugement n°1505165/1-1  du 12 juillet 2017

      > Lire le jugement n°1505178/1-1  du 12 juillet 2017

  1. Download 1505113 RS
  2. Download 1505126 CVAE
  3. Download 1505147 CMTP
  4. Download 1505165 TVA
  5. Download 1505178 IS

ZDNET analysis (best of the media)

Bloomberg analysis

Guardian analysis

 

 

July 13, 2017 in BEPS, Tax Compliance | Permalink | Comments (0)

IRS Releases Tax Stats for High-Income Tax Returns, Tax Year 2014

High-Income Tax Returns, Tax Year 2014—This annual study provides detailed data on returns with adjusted gross income or expanded income greater than $200,000. The study Treasury-Dept.-Seal-of-the-IRS also looks at high-income, nontaxable returns (HINTs) and the reason for nontaxability. For Tax Year 2014, there were almost 6.3 million individual income tax returns with an expanded income of $200,000 or more, accounting for 4.2 percent of all returns for the year. Of these returns, 9,692 had no worldwide income tax liability. This was a 24.2-percent decline from the number of returns with no worldwide income tax liability in 2013, and the fifth decrease in a row since the all-time high of 19,551 HINTs in 2009.

 

July 13, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, July 11, 2017

Treasury's Electronic Tax Administration Advisory Committee Issues 2017 Annual Report

The Electronic Tax Administration Advisory Committee (ETAAC) today held its annual public meeting and released its annual report to the IRS and the Treasury-Dept.-Seal-of-the-IRSCongress, which includes numerous recommendations on improving electronic security in the tax system and fighting tax fraud related to identity theft.

The report marks the first year during which the ETAAC has turned its attention to efforts undertaken by the Security Summit -- an unprecedented undertaking by the IRS and its partners in state tax administration and the private sector.

"The ETAAC’s report builds on the significant, ongoing work by the IRS, the states and our private sector partners to protect the entire tax system," IRS Commissioner John Koskinen said. "We greatly appreciate the contributions of the Committee’s members to the production of this detailed report. The IRS will be reviewing the report’s recommendations, which will help us continue to make improvements in our fight against identity theft and refund fraud."

The ETAAC is an organized public forum, chartered by the Congress, for discussion of electronic tax administration issues such as prevention of identity theft and refund fraud in support of the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns.

ETAAC members represent various segments of the tax community including tax practitioners and preparers, consumer advocates, state governments and tax software developers. 

The 2017 Electronic Tax Administration Advisory Committee Report.

July 11, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, July 7, 2017

Treasury Publishes List of 8 Regulations That Should be Withdrawn or Modified As Excessive and Burdensome, Following Trumps Executive Order To Reduce Regulatory Burdens

On April 21, 2017, President Donald J. Trump issued Executive Order 13789, a directive designed to reduce tax regulatory burdens. The order instructed the Secretary of the Treasury to review all “significant tax regulations” issued on or after January 1, 2016, and submit two reports, followed promptly by concrete action to alleviate the burdens of regulations that meet criteria outlined in the order.

Download Trump review of unnecessary tax regulations

From January 1, 2016, through April 21, 2017, Treasury and the IRS issued 105 temporary, proposed, and final regulations.3 During this time period, Treasury and the IRS issued one regulation—under Section 385 of the Internal Revenue Code—that the Office of Management and Budget designated as significant pursuant to Executive Order 12866.

Fifty-three of the 105 regulations issued during the relevant review period are minor or technical in nature and generated minimal public comment. To ensure a comprehensive review, Treasury treated the remaining 52 regulations as potentially significant and reexamined all of them for the purpose of formulating the interim report.  Based on that reexamination, Treasury has identified regulations that meet the criteria of the President’s order and qualify as significant in view of the Presidential priorities for tax regulation outlined in Executive Order 13789.

  1. Proposed Regulations under Section 103 on Definition of Political Subdivision (REG-129067-15; 81 F.R. 8870)
  2. Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) (T.D. 9770; 81 F.R. 36793)
  3. Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview (T.D. 9778; 81 F.R. 45409)
  4. Proposed Regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-163113-02; 81 F.R. 51413)
  5. Temporary Regulations under Section 752 on Liabilities Recognized as Recourse Partnership Liabilities (T.D. 9788; 81 F.R. 69282)
  6. Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858)
  7. Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit (T.D. 9794; 81 F.R. 88806)
  8. Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations (T.D. 9803; 81 F.R. 91012)

July 7, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, June 30, 2017

The Offshore Voluntary Disclosure (OVD) Programs Still Lack Transparency, Violating the Right to Be Informed.

Excerpted from the 2018 Objectives Report to Congress ....

Beginning in 2009, the IRS established a series of Offshore Voluntary Disclosure Programs (OVDPs), which allow certain people who have not reported all of their foreign assets and Taxpayer Advocateincome to settle with the IRS by paying taxes, interest, penalties, plus a “miscellaneous offshore penalty” (MOP). It also established a “streamlined” program for those who could certify their violations were not willful. These programs are governed by frequently asked questions (FAQs) posted on the IRS website. The Large Business and International (LB&I) Division Withholding and International Individual Compliance (WIIC) Director can approve minor changes to the FAQs, but the Commissioner or Deputy Commissioner must approve significant ones. IRS examiners interpret the FAQs with assistance from technical advisors and Small Business/Self-Employed (SB/SE) Counsel. They may also access training materials and job aids posted to a secure SharePoint intranet site.   Download JRC18_Volume1_AOF_03

The IRS Does Not Disclose Interpretations of OVDP Frequently Asked Questions (FAQs)

Chief Counsel Advice from (or coordinated with) national office attorneys must be disclosed under IRC § 6110.  Other “instructions to staff ” that affect the public must be disclosed under the Freedom of Information Act (FOIA).  However, the IRS does not disclose its interpretations of FAQs. For example, when the IRS first established the 2009 OVDP, it did not disclose how it interpreted FAQ #35, which addressed how to compute the “offshore penalty.” The guidance memo was only disclosed in response to a Taxpayer Advocate Directive. Practitioners have highlighted other undisclosed and counterintuitive FAQ interpretations.

While the IRS may be required to disclose FAQ interpretations under FOIA, it is generally not required to disclose legal advice regarding the OVDP FAQs under IRC § 6110. IRC § 6110 requires disclosure of certain advice provided by or coordinated with the national office, but legal advice concerning the interpretation of the FAQs is generally provided by an SB/SE attorney in the field who is an OVDP expert. Moreover, some of this advice may be privileged, even if it reveals principles that the IRS will apply in other cases.

The IRS could voluntarily disclose important interpretations of OVDP FAQs, but does not. For example, 2012 OVDP FAQ #10 is particularly important because, like 2009 FAQ #35, it concerns the amount taxpayers must agree to pay under the OVDP. FAQ #10 describes an “alternative mark-to-market” (MTM) method that OVDP participants can only use to file or amend returns inside the program. Under this method, participants are taxed on unrealized gains reduced by unrealized losses. Notably, FAQ #10 does not inform participants that they cannot offset unrealized gains with unrealized losses from years for which the refund statute expiration date (RSED) has passed. Rather, it implies the opposite by warning only that unused losses cannot be carried forward beyond the OVDP disclosure period. If unrealized losses can be claimed for some years during this period and not others (i.e., because the RSED has passed), it is misleading not to include that warning as well. Yet, that is how the IRS interprets FAQ #10 — as not permitting taxpayers to offset unrealized gains with losses from years for which the RSED had passed. Members of the Tax Section of the American Bar Association — who somehow learned of the IRS’s undisclosed interpretation of FAQ #10 — suggested that the IRS is not legally required to deny offsets from barred years and that doing so is unnecessarily punitive.

Although the IRS’s interpretation of FAQ #10 may be implied by IRS training materials, these training materials were not posted to the IRS website, as seemingly required by FOIA. Rather, a private firm acquired them by making a FOIA request and then made them available to the public on its private website. They are not indexed or organized. The firm could remove them or impose an access charge at any time. Moreover, neither the public nor other IRS employees (e.g., TAS employees) should have to search a private website for information about an IRS program.

More Routine Disclosure of Advice Would Be Helpful

In the years before the IRS was required to release its private letter rulings and other legal advice to the public, a 1926 report found that:

[R]ulings were known only to insiders … This system ha[d] created, as a favored class of taxpayers, those who ha[d] employed ‘tax experts.’ It ha[d] created a special class of tax practitioners, whose sole stock in trade [was] a knowledge of the secret methods and practices of the Income Tax Unit. Knowledge of secret precedents had made Bureau employees extremely valuable to corporate taxpayers, fostering a damaging rate of turnover. Only the regular publication of BIR [Bureau of Internal Revenue] decisions could halt this outflow and ensure equal treatment for all taxpayers.

While the IRS is more transparent today, a lack of transparency in connection with undisclosed FAQ interpretations could present the same risks. To assess those risks, TAS reviewed a sample of ten items of undisclosed advice about OVDP FAQs issued between March 1, 2016 and March 8, 2017. According to the IRS, these documents were not checked or reviewed by any disclosure expert to determine if they should be disclosed. However, TAS’s review uncovered information that could be helpful to taxpayers, such as following:

  • When the MOP is assessed pursuant to a closing agreement, the tax year recited in the closing agreement is the tax year that controls the analysis of whether it is too late to issue a refund of the MOP (e., if the refund statute of limitation under IRC § 6511 has expired). The tax year recited in these agreements is generally the last tax year in the disclosure period.
  • If a taxpayer makes a payment for the MOP and then is removed from or opts out of the OVDP, the statute of limitation under IRC § 6511 for all tax years in the OVDP submission must be analyzed in determining if it is too late to issue a refund. If the period is open for any tax year in the submission, then a claim for refund of the MOP may be considered under IRC § 6511.
  • When determining if the taxpayer had less than $10,000 in U.S. source income, as necessary to qualify for the five percent penalty under 2012 OVDP FAQ #52, the IRS considers gross income (not net income). In limited circumstances where the taxpayer receives flow-through income from an entity not controlled by the taxpayer, however, the IRS may apply a cash flow analysis for purposes of determining if the taxpayer exceeds this $10,000 threshold.
  • The IRS is legally permitted to consider an offer in compromise before there is an assessment pursuant to a closing agreement in the OVDP.
  • A Swiss “libre passage” account is not excluded from the OVDP penalty base when computing the MOP on the basis that it is a tax-favored retirement account under Swiss law. 
  • OVDP Hotline personnel can assist taxpayers in determining whether a foreign retirement account (other than a Canadian retirement plan) must be included in the OVDP offshore penalty base by collecting information and elevating the matter to an OVDP Coordinator for consideration.
  • OVDP Hotline personnel can assist taxpayers who have signed a Form 906 closing agreement and are due a refund if the examiner who handled the certification is unavailable to assist (g., has separated from service, is on maternity leave, etc.).
  • OVDP Hotline personnel can assist taxpayers who erroneously omitted an account/asset from their original disclosure by collecting the information and elevating the taxpayer’s request to make a supplemental disclosure.

While taxpayers could glean some of this information from other sources (e.g., a representative with significant OVDP experience), disclosing answers to questions about the FAQs — whether by disclosing internal training and guides or advice currently being provided to IRS employees by email — could help taxpayers (and practitioners) understand the OVDP even if they are unrepresented, reduce unnecessary calls to the Hotline, increase confidence that the IRS is handling cases consistently, reduce internal requests for advice, and reduce unnecessary requests for assistance from TAS.

The IRS Does Not Always Disclose the Basis for Its OVDP-Related Decisions

When an OVDP examiner makes an OVDP-related decision based on guidance from a field attorney, technical advisor, or committee, he or she is not required to explain the resulting “take it or leave it” decision to the participant or allow the participant to speak with the decision maker. For example, the IRS announced in 2014 that certain OVDP participants could apply to transition into a more favorable “streamlined” program if they certified their conduct was non-willful.  However, it would only allow them into the program if technical advisors, and in some cases, a secret “Central Review Committee”

agreed (i.e., taxpayers did not know who was on the committee and could not communicate with it). Participants would have no way to know if the examiner miscommunicated the facts to the technical advisor or to the committee, or what standards were being applied. Thus, a taxpayer had no way to know if the IRS’s decision in his or her case was consistent with its decisions in other similar cases.

The IRS Does Not Release Summary Statistics

The IRS’s release of certain statistics, such as the average or median tax, interest, and penalties paid inside and outside an OVDP could help assure taxpayers they are not being unfairly singled out and the programs are being administered in a rational manner. Both TAS and the Government Accountability Office have computed and publicly reported such statistics in the past. However, LB&I recently stated that TAS should not publish an update. LB&I computes OVDP results using a different methodology, which TAS has obtained and redacted (at LB&I’s request) in the Appendix below. LB&I explained:

Statistics with details beyond those publicly released in press releases by the Commissioner (most recently in IR-2016-137) may impair tax administration and are exempt from release under FOIA. LB&I’s response to FOIA request #————— from —————— ——— limited the information provided under the request to high level statistics. TAS should not release statistics more granular than those provided by the Commissioner in press releases.

We disagree. “May impair tax administration” is not the legal standard for withholding information under FOIA.26 Even if it were, the IRS has provided no basis to support its conclusion that releasing this data may impair tax administration. Moreover, if the IRS could prevent the National Taxpayer Advocate from publishing data more granular than data provided by the IRS Commissioner in press releases, her reports would be much less effective in highlighting problems, such as those caused by the IRS’s initial one-size-fits all approach to the OVDPs.

In addition to penalties assessed inside OVDP-related programs, the Treasury Department also compiles a summary of the penalties assessed outside the OVDPs against those who failed to file a Report of Foreign Bank and Financial Accounts (FBAR) for reports to Congress. However, the IRS has not disclosed this summary to the public, notwithstanding repeated requests by TAS. After years of working with the IRS to release these reports, the IRS recently stated for the first time to TAS that “Treasury is the owner of the annual FBAR report and thereby controls the release of that report.”

The IRS’s lack of transparency about how taxpayers fare inside and outside the OVDPs makes it more difficult for anyone to recognize when the result in a particular case is outside the norm. Moreover, this lack of transparency makes it impossible for impartial and independent observers to assess the effectiveness of the OVDPs.

CONCLUSION

According to a tax historian, “corruption, favoritism, secrecy, and taxpayer mistreatment” have prompted political leaders to try to restructure the IRS four times over the last 145 years. Given the IRS’s history, it may be easier for taxpayers to believe that if the agency is not transparent, it must have something to hide. The IRS and Congress’s recent adoption of the Taxpayer Bill of Rights (TBOR) could help restore faith in the agency.

However, secrecy in the OVDPs violates the TBOR. The TBOR provides that taxpayers “have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.” Blindsiding only those taxpayers who do not have special access to the IRS’s undisclosed interpretations of FAQs is inconsistent with this right, as well as the rights to quality service and to a fair and just tax system. Similarly, when the IRS does not provide for any appeal or review of “take it or leave it” offers (or even provide an explanation of them), it erodes the right to challenge the IRS’s position and be heard.

Transparency could also promote efficiency by reducing disputes. When the IRS’s lack of transparency makes people feel singled out for arbitrary and capricious treatment, they are more likely to try to elevate the IRS’s determinations, delaying resolution of their cases. Although the IRS does not disclose how long it takes to resolve OVDP cases, the Treasury Inspector General for Tax Administration recently reported “the IRS has taken nearly two years to complete 20,587 [OVDP] case certifications, with 241 cases taking at least four years to complete.” Some cases are probably delayed because participants feel they are being treated unfairly. Moreover, trust for the IRS is correlated with voluntary taxcompliance. Thus, additional transparency could help restore faith in the IRS, promote consistent results, speed case resolutions, and promote voluntary compliance.

FOCUS FOR FISCAL YEAR 2018

In Fiscal Year 2018, TAS will:

  • Advocate for the IRS to disclose all of the OVDP-related rules and procedures it is following, along with any interpretations of them (g., the OVDP Hotline Guide, training materials, and IRS Counsel’s responses to questions about the OVDP FAQs), even if disclosure is not legally required;
  • Advocate for the IRS to allow taxpayers to communicate directly with decision makers (g., OVDP Technical Advisors and the Central Review Committee) to verify that they have considered all of the relevant facts, and can articulate a reasonable basis for their decisions; and
  • Advocate for the IRS to disclose detailed summary statistics for the OVDP and streamlined programs (g., the FBAR report to Congress and the OVDP Closed Case Reports) to help taxpayers determine if they are being treated like everyone else and to help stakeholders evaluate these programs.

June 30, 2017 in GATCA, Tax Compliance | Permalink | Comments (0)

Sunday, June 11, 2017

FATCA FFI Registration System updated for FFIs to renew their agreement with the IRS

The FATCA FFI Registration system has been updated to include the ability for FFIs to renew their agreement with the IRS. From the home page link of “Renew FFI Agreement,” the FI will determine whether it must renew its FFI agreement. A table of guidelines is provided to assist in this determination. Once the determination is made, the system enables an FI to review and edit their registration form. The FI will need to verify and update their registration information and submit to renew their FFI agreement.

Those who are required to renew their FFI agreement and do not by July 31, 2017, will be treated as having terminated their FFI agreement as of January 1, 2017, and may be removed from the FFI List.

All FIs should login to the system for this determination.  For login assistance, review the FATCA FFI Registration system FAQ's.

The table below provides a general overview of the types of entities that are required to renew their FFI agreement.

Renewal of FFI Agreement

Financial Institution’s FATCA Classification in its Country/ Jurisdiction of Tax Residence

Type of Entity

FFI Agreement Renewal Required?

Participating Financial Institution not covered by an IGA; or a Reporting Financial Institution under a Model 2 IGA

Participating FFI not covered by an IGA

Yes

Reporting Model 2 FFI

Yes

Registered Deemed-Compliant Financial Institution (including a Reporting Financial Institution under a Model 1 IGA)

Reporting Model 1 FFI operating branches outside of Model 1 jurisdictions

Yes, on behalf of branches operating outside of Model 1 jurisdictions (other than related branches)

Reporting Model 1 FFI that is not operating branches outside of Model 1 jurisdictions;

No

Registered deemed-compliant FFI (regardless of location)

No

None of the above

Sponsoring entity

No

Direct reporting NFFE

No

Trustee of Trustee-Documented Trust

No

The system update includes Renewal of FFI Agreement fields and information on account home pages and the lead's view of member pages. These fields include:

  • FI Renewal of Agreement Due Date
  • Renewal of Agreement Submitted Date
  • Renewal Status 

The system will notify all approved financial institutions of the renewal open period and due date to renew the FFI agreement. The due date for all renewals is July 31, 2017.

The system instructions and online help are updated for the Renewal of FFI Agreement. The FATCA Registration User Guide is also updated to include steps for FIs to renew their FFI agreement.

Along with system fixes, the update within the registration application includes the removal of the classification of limited for FIs and FI branches.  This classification option will no longer be available for new FI applicants or for renewing FIs.

Two other changes in this release are the inclusion of a warning banner and the attempts to unsuccessfully login is now reduced to three.

June 11, 2017 in Tax Compliance | Permalink | Comments (0)

Monday, June 5, 2017

IRS Releases Statistics of Income (SOI) Bulletin - Spring 2017

The Internal Revenue Service announced that the Spring 2017 Statistics of Income Bulletin is now available on IRS.gov. The Statistics of Income (SOI) Irs_logoDivision produces the online Bulletin quarterly, providing the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue includes articles on the following topics:

• Individual Income Tax Returns, Preliminary Data, Tax Year 2015: For tax year 2015, taxpayers filed almost 151 million U.S. individual income tax returns, slightly more than were filed for the prior tax year. In tax year 2015, adjusted gross income rose 5 percent compared to the prior year, representing increases in salaries and wages, partnership income and distributions from retirement plans, among other income items.

• Individual Income Tax Shares, Tax Year 2014 provides details from income tax returns filed for tax year 2014. The average adjusted gross income (AGI) reported on these returns was $69,565, up 6.5 percent from the previous year. Total AGI increased 7.5 percent to $9.71 trillion.

June 5, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, May 30, 2017

Court Finds Wells Fargo Liable for Penalties for Engaging in Abusive Tax Shelter Scheme

Wells Fargo Engaged in an Abusive Tax Shelter Marketed by Barclays Bank to Generate $350 Million in Foreign Tax Credits   Download Wells_fargo_opinion

On Wednesday, a federal court in Minneapolis, Minnesota ruled that Wells Fargo is liable for a 20 percent negligence penalty Irs_logoin connection with $350 million of foreign tax credits that it claimed based on its participation in an abusive tax shelter known as Structured Trust Advantaged Repackaged Securities (STARS). This follows a Minnesota jury’s verdict on Nov. 17, 2016, that ruled Wells Fargo was not entitled to those foreign tax credits because the transaction lacked both economic substance and a non-tax business purpose.

After a three-week trial, the jury in this case was asked to determine whether Wells Fargo’s STARS transaction had economic substance, and the jury made some key factual findings. Wells Fargo contended that STARS was a single, integrated transaction that resulted in low-cost funding, but the jury found that in reality, the transaction consisted of two economically distinct and independent transactions: a loan and a trust. The jury found that the trust structure had no reasonable potential for pretax profit and that Wells Fargo entered into the trust structure solely for tax reasons. The jury also found that Wells Fargo entered into the loan solely for tax-related reasons.

In a prior decision in this case, the court noted that Barclays Bank PLC marketed the STARS transaction to American banks, which was designed to exploit differences between the tax laws in the United States and in the United Kingdom. Three other courts have rejected STARS tax shelters that Bank of New York, BB&T Bank and Santander Bank purchased. Santander Holdings USA, Inc. v. United States, 844 F.3d 15 (1st Cir. 2016), pet. for cert. filed, March 20, 2017 (No. 16‐1130); Bank of N.Y. Mellon Corp. v. Comm’r, 801 F.3d 104 (2d Cir. 2015), cert. denied, 136 S. Ct. 1377 (2016); Salem Fin., Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 1366 (2016).

“The jury verdict is a resounding message to companies trying to exploit an abusive transaction that no matter how sophisticated the scheme, these sham tax shelters will not stand,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “The Court’s opinion is equally clear that taxpayers who engage in such transactions can be subject to significant penalties.”

May 30, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, May 19, 2017

Texas Tax Professors Research Workshop at Houston Law Today

Presentation #1: 9:00 – 9:20 Presenter: Bryan Camp, “Application of Equitable Principles to Jurisdictional Time Periods”

9:00 – 9:40 Commenter: Terri Helge Treasury-Dept.-Seal-of-the-IRS
9:40 – 10:00 OPEN COMMENT

Presentation #2: 10:10 – 10:30 Presenter: Cal Johnson, Beckemeyer and the Tax Benefit Rule
10:30 – 10:50 Commenter: Johnny Buckles
10:50 – 11:10 OPEN COMMENT

Open Forum: Round Table Discussion on Business Tax Reform

Presentation #3: 12:30 – 12:50 Presenter: Susan Morse, “The Dark Side of Safe Harbors?”
12:50 – 1:10 Commenter: Bruce McGovern
1:10 – 1:30 OPEN COMMENT

Presentation #4: 1:30 – 1:50 Presenter: Bill Byrnes, “How Much Does It Cost to Roast a Cup of Starbucks?” Download 5-19-2017
1:50 – 2:10 Commenter: Bill Streng
2:10 – 2:30 OPEN COMMENT

*Open Forum 2:20 – 3:20 Roundtable Introduction of Research Topics for Non-Presenters (if time permits)

May 19, 2017 in Academia, Tax Compliance | Permalink | Comments (0)

Friday, May 12, 2017

Controlled Foreign Corporations, Tax Year 2012

Two new tables presenting data from Form 5471, Controlled Foreign Corporations, and Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, Irs_logoare now available on SOI’s Tax Stats Webpage. The tables present data from the estimated population of returns filed for Tax Year 2012. One table presents number, assets, and earnings for controlled foreign corporations and their foreign disregarded entities classified by selected country of incorporation. The other table displays number, assets, and earnings for controlled foreign corporations and their foreign disregarded entities classified by selected NAICS industrial sector.

SOI Tax Stats - Controlled Foreign Corporations

May 12, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, May 5, 2017

The IRS Scandals Are Coming Home To Roost. Congress Attempts To Reign In Perceived IRS Abuses in Yesterday's Omnibus Appropriation.

The Appropriations Committee reported that the Omnibus Appropriation for the Internal Revenue Service (IRS) provides $11.2 billion – freezing the agency at the fiscal year 2016 Irs_logoenacted level and $1 billion below the previous Administration’s budget request. This holds the agency’s budget to below the 2008 level, but provides sufficient resources to perform its core duties.

For example, the bill maintains the current level – $2.1 billion – for Taxpayer Services of which an additional $290 million is provided to improve customer service – such as phone call and correspondence response times – fraud prevention, and cybersecurity.

The GOP spun the IRS public spanking as a huge win in its column.  The Chair stated that the IRS has been plagued in recent years by the inappropriate actions of its employees and political leadership, resulting in the waste of taxpayer dollars and in unjust treatment and targeting of certain ideological groups. To address concerns related to these transgressions, the bill includes:

  • A prohibition on a proposed regulation related to political activities and the taxexempt status of 501(c)(4) organizations wherein a proposed regulation could jeopardize the tax-exempt status of many nonprofit organizations and inhibit citizens from exercising their right to freedom of speech;
  • A prohibition on funds for bonuses or to rehire former employees unless employee conduct and tax compliance is given consideration;
  • A prohibition on funds for the IRS to target groups for regulatory scrutiny based on their ideological beliefs;
  • A prohibition on funds for the IRS to target individuals for exercising their First Amendment rights;
  • A prohibition on funds for the production of inappropriate videos and conferences;
  • A prohibition on funds for the IRS to illegally disclose confidential of returns and return information;
  • A prohibition on funds for the White House to order the IRS to determine the taxexempt status of an organization;
  • A requirement for extensive reporting on IRS spending; and
  • A requirement for IRS agent education and training to become courteous public servants.

The Internal Revenue Service Appropriation is below.

taxpayer services

For necessary expenses of the Internal Revenue Service to provide taxpayer services, including pre-filing assistance and education, filing and account services, taxpayer advocacy services, and other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $2,156,554,000, of which not less than $8,890,000 shall be for the Tax Counseling for the Elderly Program, of which not less than $12,000,000 shall be available for low-income taxpayer clinic grants, and of which not less than $15,000,000, to remain available until September 30, 2018, shall be available for a Community Volunteer Income Tax Assistance matching grants program for tax return preparation assistance, of which not less than $206,000,000 shall be available for operating expenses of the Taxpayer Advocate Service: Provided, That of the amounts made available for the Taxpayer Advocate Service, not less than $5,000,000 shall be for identity theft casework.

enforcement

For necessary expenses for tax enforcement activities of the Internal Revenue Service to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes, to purchase and hire passenger motor vehicles (31 U.S.C. 1343(b)), and to provide other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $4,860,000,000, of which not to exceed $50,000,000 shall remain available until September 30, 2018, and of which not less than $60,257,000 shall be for the Interagency Crime and Drug Enforcement program.

operations support

For necessary expenses of the Internal Revenue Service to support taxpayer services and enforcement programs, including rent payments; facilities services; printing; postage; physical security; headquarters and other IRS-wide administration activities; research and statistics of income; telecommunications; information technology development, enhancement, operations, maintenance, and security; the hire of passenger motor vehicles (31 U.S.C. 1343(b)); the operations of the Internal Revenue Service Oversight Board; and other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner; $3,638,446,000, of which not to exceed $50,000,000 shall remain available until September 30, 2018; of which not to exceed $10,000,000 shall remain available until expended for acquisition of equipment and construction, repair and renovation of facilities; of which not to exceed $1,000,000 shall remain available until September 30, 2019, for research; of which not to exceed $20,000 shall be for official reception and representation expenses: Provided, That not later than 30 days after the end of each quarter, the Internal Revenue Service shall submit a report to the Committees on Appropriations of the House of Representatives and the Senate and the Comptroller General of the United States detailing the cost and schedule performance for its major information technology investments, including the purpose and life-cycle stages of the investments; the reasons for any cost and schedule variances; the risks of such investments and strategies the Internal Revenue Service is using to mitigate such risks; and the expected developmental milestones to be achieved and costs to be incurred in the next quarter: Provided further, That the Internal Revenue Service shall include, in its budget justification for fiscal year 2018, a summary of cost and schedule performance information for its major information technology systems.

business systems modernization

For necessary expenses of the Internal Revenue Service's business systems modernization program, $290,000,000, to remain available until September 30, 2019, for the capital asset acquisition of information technology systems, including management and related contractual costs of said acquisitions, including related Internal Revenue Service labor costs, and contractual costs associated with operations authorized by 5 U.S.C. 3109: Provided, That not later than 30 days after the end of each quarter, the Internal Revenue Service shall submit a report to the Committees on Appropriations of the House of Representatives and the Senate and the Comptroller General of the United States detailing the cost and schedule performance for CADE 2 and Modernized e-File information technology investments, including the purposes and life-cycle stages of the investments; the reasons for any cost and schedule variances; the risks of such investments and the strategies the Internal Revenue Service is using to mitigate such risks; and the expected developmental milestones to be achieved and costs to be incurred in the next quarter.

administrative provisions—internal revenue service

(including transfers of funds)

Sec. 101. Not to exceed 5 percent of any appropriation made available in this Act to the Internal Revenue Service may be transferred to any other Internal Revenue Service appropriation upon the advance approval of the Committees on Appropriations.

Sec. 102. The Internal Revenue Service shall maintain an employee training program, which shall include the following topics: taxpayers' rights, dealing courteously with taxpayers, cross-cultural relations, ethics, and the impartial application of tax law.

Sec. 103. The Internal Revenue Service shall institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information and protect taxpayers against identity theft.

Sec. 104. Funds made available by this or any other Act to the Internal Revenue Service shall be available for improved facilities and increased staffing to provide sufficient and effective 1–800 help line service for taxpayers. The Commissioner shall continue to make improvements to the Internal Revenue Service 1–800 help line service a priority and allocate resources necessary to enhance the response time to taxpayer communications, particularly with regard to victims of tax-related crimes.

Sec. 105. None of the funds made available to the Internal Revenue Service by this Act may be used to make a video unless the Service-Wide Video Editorial Board determines in advance that making the video is appropriate, taking into account the cost, topic, tone, and purpose of the video.

Sec. 106. The Internal Revenue Service shall issue a notice of confirmation of any address change relating to an employer making employment tax payments, and such notice shall be sent to both the employer's former and new address and an officer or employee of the Internal Revenue Service shall give special consideration to an offer-in-compromise from a taxpayer who has been the victim of fraud by a third party payroll tax preparer.

Sec. 107. None of the funds made available under this Act may be used by the Internal Revenue Service to target citizens of the United States for exercising any right guaranteed under the First Amendment to the Constitution of the United States.

Sec. 108. None of the funds made available in this Act may be used by the Internal Revenue Service to target groups for regulatory scrutiny based on their ideological beliefs.

Sec. 109. None of funds made available by this Act to the Internal Revenue Service shall be obligated or expended on conferences that do not adhere to the procedures, verification processes, documentation requirements, and policies issued by the Chief Financial Officer, Human Capital Office, and Agency-Wide Shared Services as a result of the recommendations in the report published on May 31, 2013, by the Treasury Inspector General for Tax Administration entitled “Review of the August 2010 Small Business/Self-Employed Division's Conference in Anaheim, California” (Reference Number 2013–10–037).

Sec. 110. None of the funds made available in this Act to the Internal Revenue Service may be obligated or expended—

(1) to make a payment to any employee under a bonus, award, or recognition program; or

 

(2) under any hiring or personnel selection process with respect to re-hiring a former employee, unless such program or process takes into account the conduct and Federal tax compliance of such employee or former employee.

Sec. 111. None of the funds made available by this Act may be used in contravention of section 6103 of the Internal Revenue Code of 1986 (relating to confidentiality and disclosure of returns and return information).

Sec. 112. Except to the extent provided in section 6014, 6020, or 6201(d) of the Internal Revenue Code of 1986, no funds in this or any other Act shall be available to the Secretary of the Treasury to provide to any person a proposed final return or statement for use by such person to satisfy a filing or reporting requirement under such Code.

Sec. 113. In addition to the amounts otherwise made available in this Act for the Internal Revenue Service, $290,000,000, to be available until September 30, 2018, shall be transferred by the Commissioner to the “Taxpayer Services”, “Enforcement”, or “Operations Support” accounts of the Internal Revenue Service for an additional amount to be used solely for measurable improvements in the customer service representative level of service rate, to improve the identification and prevention of refund fraud and identity theft, and to enhance cybersecurity to safeguard taxpayer data: Provided, That such funds shall supplement, not supplant any other amounts made available by the Internal Revenue Service for such purpose: Provided further, That such funds shall not be available until the Commissioner submits to the Committees on Appropriations of the House of Representatives and the Senate a spending plan for such funds: Provided further, That such funds shall not be used to support any provision of Public Law 111–148, Public Law 111–152, or any amendment made by either such Public Law.

May 5, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, May 4, 2017

Citizens for Tax Justice Finds Missing $70 Billion For Trump To Build His Great Southern Wall

Forgive the alarmist headline.  But I just read Citizens for Tax Justice Network (CTJ)*/ITEP defending FATCA because it can raise $40 billion to $70 billion tax revenue a Pot-of-gold-2130425_960_720year for the U.S.  Enough already.  I hope that Citizens for Tax Justice/ITEP are correct and that $70 billion a year remains to be recovered by the IRS from non-reported foreign income.  I work for a public taxpayer-funded academic research institution.  If all the FATCA digging can discover a $70 billion treasure chest that can be spent on higher education support (instead of the Great Southern Wall) then I'm first in line with my hat out for further research funding.  While there may be supportable reasons for Tax Justice / ITIP to argue for requiring foreign institutions to submit the equivalent of the 1099 series to the U.S. Treasury, the collection of an additional $70 billion in tax revenue is likely not one of them.  So let's look at the $70 billion of hidden tax revenue waiting to be discovered....

The article states that "it is estimated that the United States loses $40 to $70 billion in revenue annually due to individual income tax evasion."  Its citation of this data is the September 2016 Congressional Research Service report: FATCA Reporting on U.S. Accounts: Recent Legal Developments.  However, I read the CRS report and it is primarily about the status of IGAs and protection (I argue lack thereof) of taxpayer information shared.  I could not find in the CRS the $40 - $70 billion figure or even a discussion about the calculation of revenue annually lost to individual income tax evasion.  

And that term implies "all" tax evasion (domestic and foreign-based nonreporting) which is quite different from previous claims of $150 billion tax revenue lost from nonreporting of foreign income.  

I think what the CTJ / ITEP commentator meant to citation is a Congressional Research Service (CRS) Memorandum of July 23, 2001 referencing an inquiry made by the House Majority Leader as to the method used by attorney Jack Blum, an IRS contract consultant, to construct the then estimate of $70 billion of illegal tax evasion losses due to tax havens. This figure was contained in his affidavit submitted in support of the government’s request from the federal court for a John Doe summons for records from MasterCard and American Express.  However, according to the CRS Memorandum: “Mr. Blum’s estimate was contained in a declaration filed in connection with a petition the Internal Revenue Service filed with the U.S. District Court for the Southern District. In response to your request, we contacted Mr. Blum and discussed his estimate; he was not able to send us a written discussion of his estimating procedure … We did not discuss these particular aspects of the estimating process in our initial conversation with Mr. Blum and our attempts to contact Mr. Blum on a follow-up basis have not been successful.” (see my 130-page SSRN article for footnotes ad nauseum)

On March 4, 2009 the IRS Commissioner Charles Shulman testified before the Subcommittee that there is no credible estimate of lost tax revenue from offshore tax abuse.  Treasury Departments have often stated large figures of unreported annual taxable income in foreign jurisdictions, and a huge asset base from which that income percolates.  By example, the IRS has stated that underreporting and underpayment of tax liabilities account for more than 90 percent of the $450 billion tax gap dollars. While the IRS has not estimated the size of the international tax gap, the Treasury Inspector General for Tax Administration reported in 2012 that estimates range from $40 billion to $123 billion annually.  

I fancy myself a two-bit political economist of sorts and thus understand the difficulty in measuring an unseeable "black hole" (I recall Dutch Prof. Dr. Brigitte Unger of Utrecht referring to her measuring of the opaqueness of the money laundering industry in this way, but it may have been my crime fighting friend Prof. Dr. Dionysios Demetis of Hull).  However, just like with 'proving' the existence of a black hole, we can research for and analyze data of 'measurable' surrounding circumstances.  In 2000, the U.S. State Department estimated that assets 'secreted' in offshore jurisdictions totaled $4.8 trillion. In 2007, the OECD estimated the total at $5 trillion to $7 trillion.  If banks, like UBS,  had such significant 'secreted' assets in 2007, then I wonder why it is that these same banks required capital bailouts in 2008 from sovereign wealth funds, direct governments intervention, and central banks? Seems to me a disconnect.  Several academics and economists with various motivations have sought to measure the AUM of international financial centers, naming just two examples from many: the IMF and Brook Harrington.  I welcome a research grant and a collaborative team (without a political opinion to express in its findings) to undertake an exhaustive research and analysis.  

The CTJ/ITEP article then points to the egregious UBS  conduct wherein the bank assisted clients in evading U.S. tax on $15 billion of assets (I recall it being $20 billion but I'll go with Citizen's for Tax Justice's figure).  I also recall that after the full investigation of Credit Suisse's international clients that more than half of the clients turned out to be 'tax compliant', or so the bank testified under oath about the findings of a robust audit of its international client base by a respected outside U.S. law firm.  See my commentary of 2014  Of about $10 billion of Credit Suisse AUM initially identified as potentially non-compliant with U.S. tax laws, it turned out that $5 billion were compliant and another $2 billion had lost a U.S. tax during the time in question.  

Still, $4 or 5 billion of non-compliant AUM is $ 4 or $5 billion of AUM.  Not something that should go unnoticed by a reputable bank.  Not excusing Credit Suisse or UBS in any way. The bank and its employee(s) should be held accountable for assisting individuals in committing a crime against the U.S. government.  The other governments of the world may not like the U.S. jurisdictional criminal reach into their business' affairs, but that's the reality they live in for exposing themselves to the U.S. market.  Especially banking institutions that are both subsidized and protected by U.S. taxpayers, or take advantage of the U.S. financial markets (UBS had significant U.S. exposure during the time of its non-compliant behavior). 

Let's say it all of UBS was non-compliant dollars hidden from the IRS though probably some portion was compliant.  5% return on $15 billion is $750 million. Take an average 15% tax rate on portfolio income and that gives is $112.5 million.  UBS, the biggest wealth manager for foreign assets under management, I recall reading in industry reports back when the UBS case broke, had 10% of the market.   Let me cut that figure in half for sake of argument.  So if UBS is representative of only 5% of the market, we are still in the $2 billion range of lost tax revenue - a very far cry from the articles $40 - $70 billion, or previous $150 billion.  More likely, it's a lot less.  (see my previous commentary on Kluwer's Tax Blog)

See Background and Current Status of FATCA (March 1, 2017). LexisNexis® Guide to FATCA & CRS Compliance (5th ed., 2017) . SSRN: https://ssrn.com/abstract=2926119 

book coverByrnes’ Lexis Guide to FATCA & CRS Compliance – NEW 2017 edition expanded to two-volume set!

Since the first edition written in Spring of 2012, the industry leading 2,000 page analysis of the FATCA and CRS compliance challenges,  79 chapters by FATCA and CRS contributing experts from over 30 countries.  Besides in-depth, practical analysis, the 2017 edition includes examples, charts, timelines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   Byrnes’ Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  This treatise also includes in-depth analysis of designing a FATCA internal policy, designing an equivalent form to the W-8, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, validation for fit for purpose, data management, and exchange by firms and between countries, insights as to the application of FATCA, CRS, and the IGAs within BRIC, SEA and European country chapters.  This fifth edition provides the financial enterprise’s FATCA compliance officer the tools for developing and maintaining a best practices compliance strategy.  No filler of forms and regs – it’s all Texas beef folks!

* In an earlier version this morning I inadvertently swapped TJN for CTJ.  I am separately examining a TJN post of yesterday citing to a Finish government sponsored Global Financial Integrity report measuring illicit flows (see here) based upon matched-trade methods to estimate misinvoicing. Trade misinvoicing is calculated by comparing a country’s reported trade statistics with those of its “advanced economy” trading partners (see p. 46 of the GFI report).

May 4, 2017 in GATCA, Tax Compliance | Permalink | Comments (1)

Friday, April 28, 2017

Toward a Perspective-Dependent Theory of Audit Probability for Tax Compliance Models

The classic deterrence theory model of income tax evasion first articulated in 1972 has met significant criticism because it does not comport with the observed rate of tax compliance. This Jack.manhire article argues that the classic expected utility model and its various progeny, including nonexpected utility models, employ too general a notion of taxpayers’ probability of audit by equating the latter to the frequency with which the government audits tax returns. Given that audit probabilities vary significantly based on whether taxpayers underreport tax on their returns, these models should be revised to reflect the conditional nature of audit probability from the taxpayers’ perspective. If one applies this perspective-dependent definition of audit probability to both expected and nonexpected utility models, the theoretical results will more closely reflect the observed rate of tax compliance.

Manhire, Jack, Toward a Perspective-Dependent Theory of Audit Probability for Tax Compliance Models (April 18, 2014). 33 Virginia Tax Review 629 (2014). Available at SSRN: https://ssrn.com/abstract=2366325 or http://dx.doi.org/10.2139/ssrn.2366325

April 28, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, April 18, 2017

What Does Voluntary Tax Compliance Mean?: A Government Perspective

One of the IRS’s principal goals is to maximize voluntary compliance. Yet, there is often a great deal of confusion and consternation when taxpayers discover that the IRS refers to the Jack.manhireannual filing and payment ritual as “voluntary;” especially since most taxpayers do not believe they have a choice when it comes to filing and paying their taxes. What does voluntary compliance mean? Does it mean taxpayers can volunteer to file returns and pay taxes, much as one might volunteer to make a charitable donation? Does it mean taxpayers don’t have to comply with the tax laws if they don’t feel like it? How can it be a federal crime to not file or pay taxes if compliance is voluntary? This essay offers a government perspective as to why the IRS uses this sometimes perplexing term. After investigating (and dismissing) a possible literal defense, the essay surveys the IRS’s history to see why voluntary compliance is such a critical part of the U.S. tax system. The essay then recommends changing the term from voluntary to cooperative compliance to retain the government’s meaning while lessening taxpayer confusion.

Manhire, Jack, What Does Voluntary Tax Compliance Mean?: A Government Perspective (2015). 164 University of Pennsylvania Law Review Online 11 (2015); Texas A&M University School of Law Legal Studies Research Paper No. 16-58. Available at SSRN: https://ssrn.com/abstract=2601613

April 18, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, April 14, 2017

UK Fines PhD Student for Not Filing Tax Returns Though No Tax Due, Dissertation Changes Not Excuse For Delayed Filing

Dr. Olga Malinovskaya v HMRC [2017] UKFTT 245 (TC).

The appellant Dr. Olga Malinovskaya was born in Russia and is an academic. She has obtained degrees in the USA and France. She was a research student at Lincoln College, Oxford HMRC logofrom 15 January 2011 to 6 June 2016 successfully reading for the degree of Doctor of Philosophy in Medieval and Modern languages, and graduating on 22 July 2016. The appellant has provided evidence in support of the above.

In an attempt to fund her stay in Oxford she formed a film distribution business (Vintage Films Ltd) which was registered in October 2010. The company has never yielded any profit. It is still in existence but the appellant says it has been “dormant for HMRC purposes”.  The appellant worked full time at Gherson, an immigration and human rights law firm from January 2012 to May 2014 and from August 2016 to date. Whilst there she paid tax at source and was never asked to complete SA returns until February 2016.

In January 2016 the appellant was aware that she had received £500 from Oxford University in June 2015 so applied for self-assessment. The end result was that she was also asked to provide SA returns for years 2012-2013, 2013-2014, and 2014-2015.

In respect of reasonable excuse HMRC say that they consider the actions of a taxpayer should be considered from the perspective of a prudent person. Exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the Tax Acts…. The test is to determine what a reasonable taxpayer, in the position of the taxpayer, would have done…….”.   In respect of the penalty being unfair HMRC say for a penalty to be disproportionate it must be “not merely harsh but plainly unfair.” They refer to the decision in International Transport Roth Gmbh v SSHD.  [HMRC] says special circumstances must be “exceptional, abnormal or unusual” (Crabtree v Hinchcliffe) or “something out of the ordinary run of events” (Clarks of Hove Ltd. v Bakers’ Union). HMRC consider that there are no special circumstances which would allow them to reduce the penalty.

Tribunal’s Observations

The Tribunal agrees with HMRC that it is the Appellant’s responsibility to submit SA returns on time.  The returns for the periods 2012-2013, 2013-2014, and  2014-2015 were due to be submitted by 9 May, 2016, 9 May 2016, and 18 May 2016 respectively, but they were all submitted late on 16 October 2016. Penalties totalling £2,250 are therefore due unless the appellant can establish a reasonable excuse for the delay as referred to in Paragraph 23(1) Schedule 55 Finance Act 2009.  A reasonable excuse is normally an unexpected or unusual event that is unforeseeable or beyond the taxpayer’s control, and which prevents them from complying with their obligation to file on time.

The appellant gives details of her appeals to HMRC against the penalties and requesting them to remove the notices to file self-assessment returns. She also gives evidence supporting telephone calls made to HMRC. She maintains there was no income that requires an SA return for the years 2012-2013, 2013-2014, and 2014-2015. She claims to have been wrongly advised that the only way she could cancel the notices to file and the late penalties would be to file SA returns. She says that it is within HMRC powers to withdraw or cancel notices to file.  After filing the returns she was advised there was no tax liability for the years 2012-2013 and 2013-2014 and that she was due a refund of £778.59 in respect of 2014-2015. That refund has been retained by HMRC pending the outcome of this appeal.  In the tribunal’s view HMRC are entitled to satisfy themselves that no tax is due in any tax year. This is what they set out to do by means of asking the appellant to complete SA returns for the periods in question. The appellant appears to take the view that because she is satisfied that no tax is due she does not need to complete a return. The appellant is responsible for meeting the deadlines for filing her tax returns whether or not she considers any tax is due.

The appellant points out that her viva (a defence of a PhD thesis) was scheduled for 18 February 2016. The result of that was that numerous corrections had to be made to her thesis by 6 June 2016. She states that this work consumed all her time and attention during the period.  In respect of reasonable excuse the appellant points out that she was very busy in writing and correcting a thesis for a PhD and all her time was focussed on that. Many people in many and varied walks of life are very busy but they recognise that other responsibilities can impinge on their time. Completing SA returns is one such responsibility. Completing a PhD, whilst an admirable achievement, does not provide the appellant with a reasonable excuse for the late completion of tax returns.

The appellant complains that she was given a short deadline to complete the returns. The notice to file was given in early February 2016 with dates for submission over 3 months later in May 2016. The Tribunal observes that the appellant considers that the returns show no taxable income from the film distribution business and that tax on income from Ghersons was paid at source which suggests that completion of the returns would be a straight forward task and would not consume a great deal of time. Thus the Tribunal considers the appellant was given ample notice to file the returns.

 

 

 

April 14, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, April 6, 2017

Technology offers critical solutions to prevent, identify and tackle tax evasion and tax fraud

 Technological solutions offer a clear path for dramatically reducing tax evasion and tax fraud, which cost governments billions in lost revenue annually, according to a new OECD Technology-tools-to-tackle-tax-evasion-and-tax-fraudreport.

Technology Tools to Tackle Tax Evasion and Tax Fraud demonstrates how technology is currently being used by tax administrations in countries worldwide to prevent, identify and tackle tax evasion and tax fraud. These solutions can offer a win-win: better detection of crime, higher revenue recovery, and synergies that can make tax compliance easier for business and tax administrations.

Drawing on the experience of 21 countries, the report provides real and readily-applicable examples of best practices in the effective use of technology in the fight against tax crimes:

  • In Rwanda, the introduction of point of sale technology to address electronic sales suppression resulted in a 20% increase in VAT collected on sales.
  • In the Canadian province of Quebec, similar technology was introduced in the restaurant sector, resulting in the recovery of approximately EUR 822 million in taxes.
  • In Hungary, electronic cash registers increased VAT revenue by 15% in the concerned sectors.

The report will be launched today during the 2017 OECD Global Anti-Corruption and Integrity Forum in Paris. The event brings together stakeholders from government, academia, business, trade and civil society to engage in dialogue on policy, best practices, and recent developments in the fields of integrity and anti-corruption.

Grace Perez-Navarro, Deputy Director of the OECD's Centre for Tax Policy and Administration will present the report during the Forum's session on "Restoring Trust in the Tax System: Ensuring Everyone Pays their Fair Share". This session will be broadcast live from 11:00-12:30 (CEST). Further details are available on the Forum website:
www.oecd.org/cleangovbiz/live-streaming-anti-corruption-integrity-forum-2017.htm

The report was prepared by the OECD's Task Force on Tax Crimes and Other Crimes, which works to further the Oslo Dialogue. Launched by the OECD in 2011, the Oslo Dialogue promotes a whole-of-government approach to tackling financial crimes by fostering inter-agency and international co-operation.

April 6, 2017 in Tax Compliance | Permalink | Comments (0)

Wednesday, March 8, 2017

IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2013 Federal Income Tax Return

The Internal Revenue Service announced today that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did Irs_logonot file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year's tax deadline, Tuesday, April 18.

"We’re trying to connect a million people with their share of 1 billion dollars in unclaimed refunds for the 2013 tax year,” said IRS Commissioner John Koskinen. “People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund.”

The IRS estimates the midpoint for potential refunds for 2013 to be $763; half of the refunds are more than $763 and half are less.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2013 were:

  • $46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;
  • $43,038 ($48,378 if married filing jointly) for people with two qualifying children;
  • $37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;
  • $14,340 ($19,680 if married filing jointly) for people without qualifying children.

Current and prior year tax forms (such as the Tax Year 2013 Form 1040, 1040A and 1040EZ) and instructions are available on the IRS.gov Forms and Publications page or by calling toll-free: 800- TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2013, 2014 or 2015 should request copies from their employer, bank or other payer.

Taxpayers who are unable to get missing forms from their employer or other payer should go to IRS.gov and use the “Get Transcript Online” tool to obtain a Wage and Income transcript.  Taxpayers can also file Form 4506-T to request a transcript of their 2013 income. A Wage and Income transcript shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Taxpayers can use the information on the transcript to file their tax return.

State-by-state estimates of individuals who may be due 2013 tax refunds: 

State or District

Estimated

Number of

Individuals

Median

Potential

Refund

Total

Potential

Refunds*

Alabama

18,100

$729

$17,549,000

Alaska

4,700

$917

$5,665,000

Arizona

24,800

$650

$22,642,000

Arkansas

9,900

$722

$9,571,000

California

97,200

$696

$93,406,000

Colorado

20,200

$699

$19,454,000

Connecticut

11,500

$846

$12,691,000

Delaware

4,300

$776

$4,321,000

District of Columbia

3,200

$762

$3,341,000

Florida

66,900

$776

$67,758,000

Georgia

34,400

$671

$32,082,000

Hawaii

6,500

$793

$6,876,000

Idaho

4,500

$619

$3,919,000

Illinois

40,000

$834

$42,673,000

Indiana

21,700

$788

$22,060,000

Iowa

10,200

$808

$10,193,000

Kansas

11,100

$746

$10,700,000

Kentucky

12,900

$772

$12,627,000

Louisiana

20,300

$767

$21,209,000

Maine

4,000

$715

$3,645,000

Maryland

22,200

$770

$23,080,000

Massachusetts

23,000

$838

$24,950,000

Michigan

33,600

$763

$33,998,000

Minnesota

15,600

$691

$14,544,000

Mississippi

10,400

$702

$10,041,000

Missouri

22,400

$705

$20,787,000

Montana

3,600

$727

$3,480,000

Nebraska

5,300

$745

$5,084,000

Nevada

12,300

$753

$12,078,000

New Hampshire

4,400

$892

$4,930,000

New Jersey

29,900

$873

$33,207,000

New Mexico

8,100

$753

$8,162,000

New York

54,700

$847

$59,416,000

North Carolina

29,800

$656

$26,874,000

North Dakota

2,900

$888

$3,209,000

Ohio

36,000

$749

$34,547,000

Oklahoma

17,700

$773

$17,979,000

Oregon

15,500

$658

$14,188,000

Pennsylvania

39,400

$835

$41,078,000

Rhode Island

2,900

$796

$2,906,000

South Carolina

12,100

$674

$11,267,000

South Dakota

2,700

$823

$2,709,000

Tennessee

19,500

$743

$18,829,000

Texas

104,700

$829

$115,580,000

Utah

7,900

$667

$7,443,000

Vermont

2,000

$747

$1,859,000

Virginia

29,000

$752

$29,578,000

Washington

27,600

$829

$30,330,000

West Virginia

5,000

$855

$5,258,000

Wisconsin

12,700

$675

$11,619,000

Wyoming

2,800

$911

$3,189,000

Totals

1,042,100

$763

$1,054,581,000

 * Excluding the Earned Income Tax Credit and other credits. 

March 8, 2017 in Tax Compliance | Permalink | Comments (0)